Korean telcos showed disappointing performance in 2012 due to the heated LTE marketing competition during that period. With all three telcos equipped with nation-wide or near nation-wide LTE networks, the telcos engaged themselves in heated marketing competition to attract more LTE subscribers. As a result, the telcos managed to increase the LTE subscriber portion of their subscribers and finally posted ARPU turnaround, but overall reported weak earnings in 2012.
At this point, we believe SK Telecom’s leadership and unrivalled brand value should be highlighted again. Thanks to its strong brand value, we expect SKT will be able to compete while spending relatively less on marketing expense vs competitors. Furthermore, we expect SKT to be better prepared vs peers for the post-LTE network and we view SKT’s recent announcement of commercializing LTE Advanced (which is 2x faster than the current LTE) in September to be a positive sign.
As the three telcos gain on more LTE subscribers, we view they will start to show meaningful ARPU growth, which should help the telco earnings profile in the longer term. Once the marketing competition calms down, we expect to see ARPU growth to translate to earnings growth.
We view the key market factors to keep an eye on for the shorter term earnings profile are: 1) LTE subscriber figures and how they help increase the overall ARPU, and 2) the mobile number portability (MNP) figures which acts as a good benchmark to gage how severe the marketing competition level is.